A:

There are substantial risks involved with investments in mining operations in countries that are politically unstable. In politically uncertain situations, any number of eventualities may arise that seriously threaten the profitability of such investments. Some of the factors that can complicate mining operations in foreign countries include infrastructure access problems; problems with national and local officials or government organizations; conflicting national and regional laws; and environmental or cultural organizations that oppose mining interests over issues such as water, land or other natural resources.

A company engaged in mining in a foreign country, particularly one extracting very valuable precious metals such as gold or silver, operates only at the grace of the host country's government. Therefore, if the government that granted permission for the mining operation is unstable, the business situation for the mining company is inherently fraught with risk. The most severe threat posed by political instability is that of a political faction rising to power in the country and nationalizing the mining industry. Such an action in effect completely negates any and all previous rights granted to a foreign mining company. The company may receive some compensation or be granted very limited rights to continue operations, but it may also receive nothing at all in the form of compensation and lose mining rights, equipment and other assets. Anyone directly invested in a mining operation that is nationalized is most likely to see the entirety of his or her investment evaporate. At the very least, shareholders in the mining company may suffer significant losses, depending on how large a portion of the company's overall mining interests is affected.

Nationalization is an extreme situation, though nonetheless a real possibility, but any of a number of other politically related problems may arise that threaten to shut down a mining operation or seriously detract from its profitability. A change in government, either locally or nationally, can lead to new tax policies that may have a substantial negative effect on the mining company's profitability. Problems can arise from changes in export laws, tariffs, shipping costs or fees for use of infrastructure. A new government might put into effect a required minimum wage for mine workers that effectively renders the mining operation incapable of operating on a profitable basis.

Corruption is nearly always problematic and costly for any type of business operating in a politically unstable country. Corruption most often presents itself in the form of requirements for facilitation payments, essentially bribes, to be paid to government or other officials for a company to receive necessary operating permits, materials or operational support services. Such costs can be relatively insignificant or financially crippling for a mining operation.

Another threat to profitability for mining operations comes from environmental or indigenous cultural groups that may oppose mining operations for a number of reasons, usually related to land or water usage or overall environmental impact.

Mining operations in politically unstable environments always carry additional risk. The risk factors are lowered somewhat if the country has a long, established history of mining laws friendly to foreign investment, but in uncertain political circumstances, all potential threats to its operations must be carefully monitored by a mining company.

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